US Department of Commerce Publishes Final Rule on Treatment of Alleged "Currency Undervaluation" in Countervailing Duty Proceedings

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On February 4, 2020, the US Department of Commerce (DOC) published a final rule establishing a process by which DOC may treat a foreign country's "currency undervaluation" as a countervailable subsidy for purposes of US countervailing duty (CVD) proceedings, thus potentially subjecting imports from that country to remedial duties. The final rule retains the key elements of DOC's proposed rule issued in May 2019 but makes several important changes, some of which may broaden the rule's applicability. The new rule will apply to all segments of countervailing duty proceedings initiated on or after April 6, 2020, and will likely prompt domestic petitioners to include new subsidy allegations of currency undervaluation in future CVD petitions or administrative reviews. Although China has historically been a target of US currency/CVD proposals, the yuan has lately been considered fairly-valued, and the new DOC rule could result in increased duties on imports from several countries. Regardless of the target country, however, any such measures would likely face legal challenges both in US courts and at the World Trade Organization. An overview of the final rule is provided below.

Background and Overview of the Final Rule

Under both US law and the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), a subsidy is defined as (1) a financial contribution (e.g., a grant or loan) (2) by a government or "public body," or by a private body entrusted or directed by the government; (3) that confers a benefit on the recipient. A subsidy is countervailable where it is "specific" (i.e., where it is limited to an enterprise or industry, group of enterprises/industries, or a region; or where it is a prohibited export subsidy or import substitution subsidy). An affirmative DOC final determination on countervailable subsidies will result in CVDs on subject imports where those goods are also found by the US International Trade Commission (ITC) to have caused (or threatened to cause) material injury to the domestic industry producing the same product.

DOC's final rule acknowledges that neither US law nor DOC's existing regulations specify how to determine the existence of a benefit or specificity when DOC is examining a potential subsidy resulting from the exchange of currency. DOC therefore has determined to address this issue by modifying two of its regulations pertaining to the determination of benefit and specificity in US CVD proceedings. However, the final rule does not specify the types of actions that DOC would find to constitute the requisite financial contribution, and DOC has declined to elaborate on this issue in its response to public comments on the proposed rule. We discuss these issues in greater detail below.

Financial Contribution

The final rule does not specify the circumstances in which DOC would find that currency undervaluation constitutes a financial contribution, nor does it explain how DOC will determine whether such a financial contribution has been provided by an "authority" (i.e., a government or public body) or by a private entity "entrusted or directed" by the government. However, DOC's responses to various comments on the final rule do provide some guidance:

  • First, DOC's statements indicate that the agency's financial contribution determination will be based on an investigated exporter's receipt of domestic currency in exchange for US dollars earned on export transactions. In particular, DOC reiterated the view it expressed in the preamble to the proposed rule that "[t]he receipt of domestic currency from an authority (or an entity entrusted or directed by an authority) in exchange for U.S. dollars could constitute the financial contribution under section 771(5)(D) of the Act." DOC further indicated that it would treat such an exchange as a "direct transfer of funds" under Section 771(5)(D)(i).
  • Second, DOC also explained that it would only determine in subsequent proceedings whether an entity that is not a "government" (e.g., a private bank) has provided a currency-related financial contribution. In this regard, commenters had requested official interpretations of the statutory terms "authority" (public body) and "entrusts or directs," but DOC expressly declined to elaborate and instead stated that "that these issues are more appropriately raised in the context of an actual CVD proceeding." DOC did emphasize, however, that it will "examine entrustment or direction on a case-by-case basis" and "enforce this provision vigorously," and that the statutory language could encompass a "broad range of meanings." This suggests that DOC could find a financial contribution even where the currency exchanges under investigation are carried out by two private parties in a market economy country.


DOC in the final rule elaborated on the methodology it will "normally" use to determine whether a currency undervaluation confers a "benefit" on the exporter under investigation, as well as the amount of any such benefit. The proposed rule stated only that, in determining whether a benefit is conferred when a firm exchanges US dollars for the domestic currency of a country under a unified exchange rate system, DOC (1) "normally will consider a benefit to be conferred when the domestic currency of the country is undervalued in relation to the United States dollar"; and (2) will request that the Treasury Department evaluate whether the currency of a country is undervalued. The final rule expands on DOC's new methodology and adopts a "two-step approach" for determining benefit:

  • First, the final rule specifies that, in determining whether a country's currency is undervalued, DOC "normally will take into account the gap between the country's real effective exchange rate (REER) and the real effective exchange rate that achieves an external balance over the medium term that reflects appropriate policies (equilibrium REER)" (emphasis added). In addition, the rule now states that DOC (1) "normally" will find the existence of a benefit "only if there has been government action on the exchange rate that contributes to an undervaluation of the currency"; and (2) will not "normally" include monetary and related credit policy of an independent central bank or monetary authority in assessing whether there has been such government action (emphasis added).
  • Second, the rule now specifies that, where DOC has found a country's currency to be undervalued, it "normally" will determine the existence of a benefit "after examining the difference between" (1) the nominal, bilateral United States dollar rate consistent with the equilibrium REER; and (2) the actual nominal, bilateral United States dollar rate during the relevant time period, taking into account any information regarding the impact of government action on the exchange rate (emphasis added). Where such a difference exists, the amount of the benefit from a currency exchange "normally" will be based on the difference between the amount of currency the firm received in exchange for United States dollars and the amount of currency that firm would have received absent the difference (emphasis added).

DOC's responses to public comments on the proposed rule provide limited insight into its likely approach to determining a currency undervaluation benefit. For example, in expressly rejecting claims that, under its methodology, "X percent undervaluation" will necessarily lead to "X percent duty", DOC made clear that the calculation of benefit to a particular firm will "be firm specific" and based on exporters' questionnaire responses. Thus, final CVD rates may be less than the rate of a currency's overall undervaluation and could vary substantially among exporters depending on their reported currency exchange transactions during the period of investigation. DOC also established that it will not consider whether and to what extent an undervalued exchange rate increases a respondent exporter's costs (e.g., for imported raw materials and equipment), thereby reducing the total benefit that the exporter allegedly received on its export transactions. According to DOC, such an "offset" is not contemplated by the CVD statute, and thus was not included in the rule.

Finally, DOC elaborated on the process by which the US Treasury will provide its input in any future CVD proceeding on currency undervaluation, as required under the new rule (19 C.F.R. § 351.528(c)). In particular, DOC will (1) request and expect to receive Treasury's evaluation and conclusion as to undervaluation, government action and the bilateral U.S. dollar rate gap; and (2) place Treasury's evaluation and conclusion on the record and allow the submission of factual information to rebut, clarify or correct Treasury's evaluation and conclusion, as required by 19 C.F.R. § 351.301(c)(4).

These comments provide some additional clarity on DOC's likely approach to identifying currency undervaluation and calculating any resulting benefit to exporters, but significant ambiguities remain. For example—

  • As shown above and noted by DOC in response to public comments, because the final rule provides only that DOC "normally" will follow the stated methodologies, DOC has retained discretion to use alternative methodologies and evidence that might be less advantageous towards exporters or contradict the views of the IMF or other widely-accepted currency assessments;
  • While DOC states that it normally will find a benefit only where "government action on the exchange rate" has occurred, the agency has provided no further guidance on this term, stating instead that "the scope of government action under this final rule will necessarily become more clear as Commerce considers a range of government actions over time and the institutional settings in which they are undertaken";
  • Relatedly, DOC has not clarified whether the type of devaluation matters. The agency recognizes that Treasury is charged with examining whether a country manipulates its exchange rate "for purposes of preventing effective balance of payments adjustments or granting unfair competitive advantage in international trade," implying a requirement of intentionality. DOC, on the other hand, expressly states that "a determination that the foreign subsidizing government is intending to provide... a competitive advantage... or to otherwise manipulate the playing field, is not a required element of a CVD determination under US law." Thus, there would seem to be an unresolved tension between the agencies' respective currency mandates and when government intent should be considered. This issue is far from abstract: for example, would DOC's final rule treat a country that devalues its currency in response to an economic crisis the same as one that engages in intentional, competitive devaluation?
  • The rule does not specify whether DOC's calculations will take into account an exporter's US-based exchange transactions only or, alternatively, all of the exporter's exchange transactions (which could increase the amount of any benefit found to exist);
  • DOC in response to public comments also held out the possibility that it will expand its approach to calculating benefit in the future by taking into account conversions of all currencies (not just the U.S. dollar) into the domestic currency. DOC states that it does not plan to take this approach "at this time", given the agency's lack of experience with determining the benefit from exchanges of currency, but also notes that "[o]nce Commerce gains more experience in investigating and analyzing this type of subsidy, there may come a time to adopt" such an approach;
  • Although DOC stated that it will "defer to Treasury's expertise with respect to currency undervaluation," DOC "will not delegate to Treasury the ultimate determination of whether currency undervaluation involves a countervailable subsidy in a given case." As such, the agency "will normally follow Treasury's evaluation and conclusion regarding undervaluation," but can depart from Treasury's evaluation and conclusion based on substantial evidence on the administrative record. DOC expressly refused to describe in detail when such a "departure" will occur.

DOC's decision on each of these issues could have a substantial effect on the agency's benefit determinations and the magnitude of final duty rates based thereon.


The final rule amends DOC's regulations regarding the specificity of domestic subsides (19 C.F.R. § 351.502) to provide that "[i]n determining whether a subsidy is being provided to a 'group' of enterprises or industries within the meaning of section 771(5A)(D) of the [the Tariff Act], the Secretary normally will consider enterprises that buy or sell goods internationally to comprise such a group." In defending its approach, DOC indicated that its determination of whether a currency subsidy is specific would occur pursuant to section 771(5A)(D)(iii) of the Act, which addresses de facto specificity. In response to public comments, DOC explained that "under this regulation, if a subsidy is limited to enterprises that buy or sell goods internationally, or if enterprises that buy or sell goods internationally are the predominant users or receive disproportionately large amounts of a subsidy, then that subsidy may be specific."

This change arguably represents an expansion of the number of sectors and subsidy recipients that would permit DOC to find de facto specificity, i.e., that it may consider to constitute a "group" under the specificity provisions of US CVD law (section 771(5A)(D)). For example, some commenters cited to previous CVD investigations of aluminum extrusions and coated paper to illustrate that treating all exporters as a "group" for purposes of specificity for domestic subsidies (as opposed to export subsidies, which are per se specific) is contrary to DOC's past practice. A "group" that includes all exporters and importers would arguably be even broader. While DOC appears to acknowledge this shift in practice (by noting that "it is a fundamental principle of administrative law that an agency is allowed to change its practice, provided the change is reasonable and explained"), the agency maintains that (1) its new approach is consistent with US law; and (2) "because U.S. law is consistent with our international obligations", the new approach is also consistent with WTO rules.

Notably, the final rule adopts an even broader interpretation of the term "group" than that which DOC included in its proposed rule. DOC initially proposed that it would consider "enterprises that primarily buy or sell goods internationally" to comprise a group (emphasis added), but has omitted the term "primarily" from the final rule in response to public comments. Thus, under the final rule, DOC potentially could find a subsidy resulting from currency undervaluation to be specific to the traded goods sector of an economy even where it is available to enterprises that engage in international trade to a lesser degree.


DOC's final rule will apply to all segments of CVD cases initiated on or after April 6, 2020, and it is likely that US petitioners will begin to utilize the rule shortly thereafter in both new CVD investigations and administrative reviews of CVD orders now in force. Given the significant ambiguities in DOC's final rule, particularly with respect to the agency's determination of financial contribution and benefit, these initial proceedings will be critical in terms of clarifying DOC's practice with respect to treating currency undervaluation as a countervailable subsidy.

These early cases will also likely indicate the range of countries potentially subject to future currency/CVD allegations. Under one approach, for example, DOC could limit its inquiries to "non-market economy" countries or those with a substantial state-owned banking sector. On the other hand, DOC's reach could be much broader. For example, the IMF's most recent annual assessment found multiple countries to have negative REER gaps in 2018, which, according to the IMF, implies an undervalued exchange rate (as shown in the table below).[1] The Treasury Department has relied on these IMF assessments of currency undervaluation in its recent annual reports to Congress on the Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States.[2]

Country IMF Staff-Assessed REER Gap, 2018 (%)[3]
Argentina -12.5
China -1.5
Euro Area -3.0
Germany -13.0
Indonesia -4.0
Japan -1.5
Korea -4.0
Malaysia -5.0
Mexico -6.0
Netherlands -8.6
Poland -2.5
Russia -6.0
Singapore -8.2
Sweden -10.0
Switzerland -2.8
Thailand -8.5
Turkey -15.0

Source: IMF External Sector Report, July 2019, Table 1.7


DOC's treatment of ambiguous provisions – for example on "entrustment or direction" or "government action" – will likely determine whether exporters in these countries have received countervailable subsidies under the final rule.

Finally, it is highly likely that one or more of DOC's initial currency undervaluation determinations, as well as the final rule itself, will face legal challenge before the US Court of International Trade or the WTO's Dispute Settlement Body. For example, DOC's final rule expands upon or changes outright past agency practice on the treatment of currency policy under US CVD law, and Congress repeatedly considered and rejected legislation to amend the law so that DOC could act. Plaintiffs might therefore argue, as some public comments did, that DOC lacked the statutory authority to alter its approach without congressional action. Furthermore, the final rule could permit interpretations of financial contribution, benefit and de facto specificity that many legal experts have long argued are inconsistent with the SCM Agreement. However, whether and to what extent such legal challenges – as well as diplomatic complaints from US trading partners – emerge may depend on the countries targeted by future currency undervaluation allegations and any CVDs resulting therefrom.

The final rule is available here.


[1] See 2019 External Sector Report, International Monetary Fund (July 2019) at p.1.  Available at  The External Sector Report provides two separate assessments of a country’s REER gap: one based on IMF staff assessments, and another based on the IMF’s External Balance Approach (EBA).  We present here the figures resulting from the IMF staff assessments, which are the figures cited by the US Treasury Department in its most recent annual report to Congress on the foreign exchange practices of US trading partners.
[2] See Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, US Department of the Treasury, Office of International Affairs (January 2020) at p.17.  Available at
[3] The figures shown above represent the midpoint of the IMF’s staff-assessed REER gaps (which are presented in ranges).  The Treasury Department similarly used the midpoint figures in its biannual report to Congress.


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